Most advisors have learned how to cope with volatility, but their clients have not, a survey finds.
The most recent Eaton Vance Advisor Top-of-Mind Index (ATOMIX) survey shows a growing disparity between advisor and client reactions to risks and opportunities.
Findings from the quarterly survey of more than 1,000 U.S. financial advisors revealed that 53% of advisors say they believed market volatility was the “new normal.” That’s not to say they’re not still concerned about volatility. According to the survey, more than half (55%) of advisors reported their concerns about volatility have grown in the last 12 months.
While advisors have indicated they are growing accustomed to operating in this environment and looking for opportunities volatility presents, the survey finds their clients have not acclimated as well to market swings.
“You’re seeing more of a disconnect between advisors embracing volatility increasingly and investors becoming more fearful,” John Moninger, managing director of retail sales at Eaton Vance, told ThinkAdvisor.
According to the survey, 81% of the advisors surveyed said their clients are motivated by fear, up from 72% 12 months ago. The survey also finds that 62% of the advisors surveyed said their clients view market volatility as a risk and not an opportunity, which is up from 56% in Q3 2015.
Moninger speculated on where this disconnect between advisors and clients is coming from. It’s his view that the media has created a disconnect from what’s “actually going on in the market today,” he said.
“Think about it, we have the elections going on,” Moninger told ThinkAdvisor. “We have a lot of noise, and if you think about the recurring theme in there: ‘The economy is terrible. Job growth is rotten. People need jobs.’ All that people are hearing is this negativity around the economy and the markets. Yet what’s going on is markets are actually pretty good, the fundamentals are pretty good, the economy’s not that bad.”
The survey shows that advisors have a more favorable view of financial markets and the U.S. economy.
“More and more of [advisors] believe that we’re in a stable growth environment,” Moninger said. Adding, “That media noise level, which is high, is a disconnect from what’s actually going on in the market today.” According to the survey, advisors are now nearly three times as likely as their clients to be more confident in the U.S. economy than they were 12 months ago. The survey also finds that 60% of advisors said the likelihood of a recession by year-end is low, up from 53% in the previous quarter. And, 45% of the advisors surveyed are expecting equity markets to remain bullish over the next quarter, while only 14% expect bearish markets.
What this disconnect creates, according to Moninger, is an opportunity for advice itself.
“It creates great opportunities for advisors to underscore their value,” Moninger told ThinkAdvisor.
According to Moninger, the growing disparity between advisor and client perspectives highlights the importance of open, frequent communication and establishing and following a carefully constructed investment plan.
And, as the survey shows, that’s exactly what advisors are doing. Nearly three out of 10 (28%) advisors reported volatility has strengthened their relationships with clients due to more interaction, and another 20% gained new clients due to ongoing market volatility.
According to Moninger, advisors play a critical role in easing clients’ concerns by clearly communicating the benefits of long-term investment goals and what it takes to reach them.
The survey found that of those advisors who indicated fear as the primary motivator among clients, 42% of those advisors increased outbound client communication and 38% indicated clients were contacting them more frequently.
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